Great Moments in Unintended Secondary Effects

With wages frozen by government edict, employers begin offering non-taxable health insurance to attract and retain scarce employees. The next sixty-odd years will feature numerous proposed government solutions to this unintended secondary effect of the original government solution.

President Eisenhower successfully resists Democratic pressure to reduce the income tax rates originally put in place to finance WWII and the Korean War. The top tax rate on individuals was 90%. The modern tax shelter industry is born.

The Interest Equalization Tax of 1963 and the Foreign Credit and Exchange Act of 1965 result in the birth and rapid growth of the Eurodollar trading system in London. With the currency market permanently placed outside of government control, the US was soon forced to abandon the gold standard (1971) and the Bretton Woods system.

Following the collapse of the Bretton Woods arrangement, the Nixon administration tries to control inflation by imposing wage and price controls, while Arthur Burns at the Federal Reserve simultaneously cuts interest rates. The Federal funds rate went from 3.2% to over 10% within two years, and stagflation was invented.

Automobile companies improve the anti-theft features of their products. As cars become more difficult to hot-wire, thieves increasingly turn to carjacking. The US Department of Justice begins keeping survey statistics for this crime in 1987.

CAFE fuel economy requirements cause carmakers to build smaller, lighter vehicles. Consumers react to the space shortage and crash dangers by buying SUV’s.

It ain’t over ’til it’s over.

10 thoughts on “Great Moments in Unintended Secondary Effects”

  1. 1970 – Massachusetts becomes the first state to pass “no fault” car insurance regulations. By the mid 1970’s fully regulated rates are in place for auto coverage.

    But wait…

    2005 – Massachusetts continues to be among the states with the lowest number of insurance providers. It’s citizens also pay the highest rates in the nation for their demographic category.

    Now why didn’t that work?? Well, if you ask them, which I have, they plead ignorance to the cause, but will then assure you that if the market is deregulated and allowed to be competitive their rates will go up. (I’m not making this up.)

    If you show them charts and graphs of their rates versus other similar states who enjoy lower rates, which I have, they are baffled.

    Would it make sense to require one year of macroeconomics for high school graduation?

  2. “CAFE fuel economy requirements cause carmakers to build smaller, lighter vehicles. Consumers react to the space shortage and crash dangers by buying SUV’s.”

    Just amend that since stationwagons were defined as automobiles for fleet mileage determination, manufactures kill production of suburban stationwagons and use truck designs for their new ‘SUVs’ a.k.a. Urban Assault Vehicles.

    Personally, I thought the government interference in the free market during the 70’s gas crisis brought this on. Since Detroit and the unions pressured Washington to shut off the massive loss of market to cheap ‘well’ built fuel efficient Japanese cars, the motivation to clean up their market act has taken nearly thrity years to get into play. Washington jawboned the Japanese government-industry to restrict imports of the cheaper brands which only resulted in the Japanese sending more of the middle cost cars which Americans continued to buy. The unintended result was that Americans with less income had to buy poorer made and shorter life American models, the throw aways.

  3. Don’t forget that price controls and then windfall profit taxes created the “energy crisis” that wracked the world for over a decade. It spawned wars and economic collapses that killed millions. It kept the Soviet Union and the cold war going for at least another five years longer than it should have. It even help create our current problems with Islamist terrorism by pumping billions into the coffers of the Wahabist in Gulf states.

    I think that falls in the “whoops” catagory.

  4. I don’t want this to be a bad car blog, but let’s not forget this attempt to build an Americanized Volkswagen. One of my friends had one, and the fishbowl glass overwhelmed the pitiful AC on mild spring days. And my Dad bought one of these horrors.

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